Safeguarding Your IP
Use of the International Trade Commission’s “Section 337” can be a powerful tool to protect medical device firms’ intellectual property.
According to one recent report, the global medical device market’s estimated value is around $206.6 billion. The demand for medical devices continues to rise as baby boomers in highly developed areas such as North America, Europe and parts of Asia get older.
The U.S. market alone was estimated at $85.6 billion in 2008, with imports supplying around 33 percent of the market. Indeed, in an effort to maintain profit margins and lower costs, many companies have relocated manufacturing operations to low-cost regions such as Southeast Asia or Latin America. Imports of surgical and medical instruments more than doubled from 2002 to 2007. In addition, the market for medical devices is highly advanced and very competitive, making the acquisition and protection of intellectual property a key component to success. According to one estimate, almost 90 percent of medical device companies that survive the start-up phase have filed for patents. In 2009, more than 12,000 Patent Cooperation Treaty (PCT) applications were filed relating to medical technology, almost half of them by U.S. companies. Indeed, innovation is at the heart of the medical device industry.
As foreign imports assume an increasing share of the market, the ability of U.S. companies to prevent infringing products from entering the United States becomes even more vital to their continued success. Section 337 investigations at the U.S. International Trade Commission (ITC) provide a powerful remedy for medical device companies to protect their intellectual property and prevent competition from unfair imports. The use of Section 337has been growing rapidly in recent years, with a virtual explosion in the number of cases being filed. In fact, approximately 20 percent of the patent cases that go to trial in the United States are being conducted at the ITC. The use of Section 337 by medical device companies, however, has lagged behind the use of this remedy in other industries, such as telecommunications devices and semiconductors, and other electronic goods and mechanical devices.
This article is the first of a two-part series that will detail how Section 337 can be used as a powerful tool by medical device companies to protect their intellectual property. The first part of this series will describe the types of cases that can be brought under the statute; the types of remedies available; how a Section 337 proceeding works; and the advantages of using Section 337 vs. other remedies to block unfair imports in cases involving medical devices. The second part of the series in an upcoming issue of Medical Product Outsourcing will discuss some actual cases in which Section 337 has been used in the medical device area.
Types of Section 337 Cases
Section 337 of the Tariff Act of 1930 prohibits unfair acts in the importation of articles into the United States. Section 337 proceedings take place before the U.S. International Trade Commission in Washington, D.C.There are three basic elements for showing a violation of Section 337 and getting an exclusion order from the ITC. First, it must be demonstrated that there is some unfair act involved. Second, there must be some connection between the unfair act and importation into the United States, or the sale of goods after importation. Third, a complainant must show that a “domestic industry” exists.
As to the first requirement, virtually any unfair act in the importation of articles can be asserted under Section 337. More than 90 percent of the cases at the ITC involve allegations of patent infringement. However, Section 337 complaints have been based on a variety of other unfair acts, including trademark and copyright infringement, trade dress infringement, grey market goods violations, unfair competition, trade secret misappropriation, passing off, and violation of the antitrust laws. The statute could be used for other unfair acts as well. For example, if products were being made abroad using factories that violate environmental laws, or if illegal child labor was being used, or if the imported products violated safety standards, Section 337 could provide a remedy.
While the ITC’s jurisdiction is limited to cases involving imported products, this is often not a difficult requirement to satisfy. As fewer products are manufactured in the United States, more of those products come within the ITC’s jurisdiction. In fact, as noted above, a large and increasing percentage of medical devices sold in the United States are manufactured abroad.
The importation requirement can be satisfied by any importation; a single sample imported for display at a trade show in the United States can suffice. A contract for sale also may satisfy the importation requirement, even if no importation has yet taken place. A company bringing a Section 337 case must demonstrate that a domestic industry exists. Once again, however, this is not usually a difficult requirement to satisfy. In a case involving “statutory” intellectual property rights, such as patents, registered trademarks, copyrights and mask works, the domestic industry test can be satisfied through a variety of activities. Manufacturing in the United States is one way to satisfy the test but is not required. A company involved in significant or substantial activities relating to engineering, research and development, licensing, or even other activities such as quality control and after sales service, may be able to satisfy the domestic industry requirement if sufficiently related to the intellectual property right being asserted. Even foreign-based companies can use the ITC to their advantage. Indeed, in 2009, more than 25 percent of the complaints filed at the ITC were filed by foreign-based companies with U.S. operations.
In a case involving “non-statutory” intellectual property or other unfair acts, such as trade secret appropriation, trade dress infringement, antitrust violations, and so forth, a complainant must show injury to the domestic industry. Injury can be shown, for example, by demonstrating that the unfair imports have been causing a loss of sales, lower prices, or adversely affecting employment in the United States. When actual injury has not yet occurred, the statute permits a showing of a “threat of injury.” If a company is concerned enough to bring a Section 337 complaint, it is likely that it will be able to prove injury to a domestic industry under the statute.
How a Section 337 Investigation Works
The process at the ITC begins with the filing of a complaint by the complainant, outlining the alleged unfair import practices, the basis for importation, and what constitutes the domestic industry. The Commission has 30 days to decide whether to institute an investigation. Typically, the ITC will institute as long as the complaint complies with the Commission’s rules.
The case is then assigned to an administrative law judge (ALJ). The parties proceed much as in a typical court case, except that everything moves much faster. In general, parties will have 10 days to respond to discovery requests and motions, rather than 30 days or more as in most cases in federal or state court.
The parties in a Section 337 case exchange documents and other discovery and, where appropriate, submit expert reports. Any party can file a motion to resolve both procedural and substantive issues. The case then goes before the ALJ for a hearing or trial. Typically, trials at the ITC are in the range of one to two weeks. Any party can call witnesses and submit documents as evidence at the hearing.
After the hearing, the ALJ issues his decision, or initial determination, as to whether or not there has been a violation of the statute. Parties can ask the Commission to review all or part of the ALJ’s decision. The ITC then issues its final determination on whether or not Section 337 has been violated, and if so, the appropriate remedy. A party adversely affected by the Commission’s decision can file an appeal with the Federal Circuit Court of Appeals, but the ITC’s exclusion order is in effect while the case is being appealed unless a respondent is able to obtain a stay of the order—which doesn’t often happen.
The Advantages of Using Section 337
Section 337 is ideally suited to protect the intellectual property rights of medical device companies. For one, Section 337 is extremely fast. By statute, cases must be resolved expeditiously. Typically, target dates are set which require the entire investigation to be completed, from initial institution of the investigation until a final Commission decision, within 12 to 16 months. This means that the case is likely to go to trial in less than a year, much faster than most federal or state courts.
If the complainant prevails, the ITC issues an exclusion order that is enforced by U.S. Customs and Border Protection and prevents the importation of the accused products at the border. In a district court case, an injunction would be limited to the specific products at issue, or other products not “colorably different” from those products. An ITC exclusion order, however, can cover all products made, imported or sold by the respondents that are infringing, not only the products found to infringe during the investigation.
In addition, in certain situations, a complaintant may be able to obtain a general exclusion order that prohibits the importation of all infringing products, regardless of source. These remedies are not available through the courts.
All known companies can be named in a single investigation at the ITC, including companies that are manufacturing infringing products outside of the United States, importing the products into the United States, and selling the product after importation.
In a typical court case, it may be necessary to bring multiple cases in different states in order to satisfy jurisdictional requirements. Also, in a court case it may take several months to serve respondents in some foreign countries, and the complaint and supporting documents may need to be translated. In contrast, the ITC serves the complaint on all proposed respondents by certified mail without the need for translations.
Companies named as respondents in a Section 337 investigation must answer the complaint and comply with discovery requests, or a default can issue and their products can be automatically excluded from the United States.
Furthermore, the administrative law judges at the ITC are very familiar with handling patent cases, and so you know you will be before a judge that is knowledgeable in these types of matters.
Section 337 can be a powerful remedy for medical device companies to prevent unfair competition from competitors that may be quicker and more effective than litigation through the courts. At a minimum, medical device companies should weigh the pros and cons of a Section 337 investigation when considering their options to protect their intellectual property rights.
* * *
In the second installment of this series, some actual cases under Section 337 involving medical devices will be discussed to illustrate how the statute works and some of its advantages.
Gary Hnath is a partner in Mayer Brown’s Washington D.C. office. His practice focuses on intellectual property litigation and counseling, including disputes involving patent, trademark and copyright infringement and trade secrets. He is a leading authority in the area of Section 337 litigation and former president of the ITC Trial Lawyers Association. Gary can be reached at ghnath@mayerbrown.com.
Use of the International Trade Commission’s “Section 337” can be a powerful tool to protect medical device firms’ intellectual property.
According to one recent report, the global medical device market’s estimated value is around $206.6 billion. The demand for medical devices continues to rise as baby boomers in highly developed areas such as North America, Europe and parts of Asia get older.
The U.S. market alone was estimated at $85.6 billion in 2008, with imports supplying around 33 percent of the market. Indeed, in an effort to maintain profit margins and lower costs, many companies have relocated manufacturing operations to low-cost regions such as Southeast Asia or Latin America. Imports of surgical and medical instruments more than doubled from 2002 to 2007. In addition, the market for medical devices is highly advanced and very competitive, making the acquisition and protection of intellectual property a key component to success. According to one estimate, almost 90 percent of medical device companies that survive the start-up phase have filed for patents. In 2009, more than 12,000 Patent Cooperation Treaty (PCT) applications were filed relating to medical technology, almost half of them by U.S. companies. Indeed, innovation is at the heart of the medical device industry.
As foreign imports assume an increasing share of the market, the ability of U.S. companies to prevent infringing products from entering the United States becomes even more vital to their continued success. Section 337 investigations at the U.S. International Trade Commission (ITC) provide a powerful remedy for medical device companies to protect their intellectual property and prevent competition from unfair imports. The use of Section 337has been growing rapidly in recent years, with a virtual explosion in the number of cases being filed. In fact, approximately 20 percent of the patent cases that go to trial in the United States are being conducted at the ITC. The use of Section 337 by medical device companies, however, has lagged behind the use of this remedy in other industries, such as telecommunications devices and semiconductors, and other electronic goods and mechanical devices.
This article is the first of a two-part series that will detail how Section 337 can be used as a powerful tool by medical device companies to protect their intellectual property. The first part of this series will describe the types of cases that can be brought under the statute; the types of remedies available; how a Section 337 proceeding works; and the advantages of using Section 337 vs. other remedies to block unfair imports in cases involving medical devices. The second part of the series in an upcoming issue of Medical Product Outsourcing will discuss some actual cases in which Section 337 has been used in the medical device area.
Types of Section 337 Cases
Section 337 of the Tariff Act of 1930 prohibits unfair acts in the importation of articles into the United States. Section 337 proceedings take place before the U.S. International Trade Commission in Washington, D.C.There are three basic elements for showing a violation of Section 337 and getting an exclusion order from the ITC. First, it must be demonstrated that there is some unfair act involved. Second, there must be some connection between the unfair act and importation into the United States, or the sale of goods after importation. Third, a complainant must show that a “domestic industry” exists.
As to the first requirement, virtually any unfair act in the importation of articles can be asserted under Section 337. More than 90 percent of the cases at the ITC involve allegations of patent infringement. However, Section 337 complaints have been based on a variety of other unfair acts, including trademark and copyright infringement, trade dress infringement, grey market goods violations, unfair competition, trade secret misappropriation, passing off, and violation of the antitrust laws. The statute could be used for other unfair acts as well. For example, if products were being made abroad using factories that violate environmental laws, or if illegal child labor was being used, or if the imported products violated safety standards, Section 337 could provide a remedy.
While the ITC’s jurisdiction is limited to cases involving imported products, this is often not a difficult requirement to satisfy. As fewer products are manufactured in the United States, more of those products come within the ITC’s jurisdiction. In fact, as noted above, a large and increasing percentage of medical devices sold in the United States are manufactured abroad.
The importation requirement can be satisfied by any importation; a single sample imported for display at a trade show in the United States can suffice. A contract for sale also may satisfy the importation requirement, even if no importation has yet taken place. A company bringing a Section 337 case must demonstrate that a domestic industry exists. Once again, however, this is not usually a difficult requirement to satisfy. In a case involving “statutory” intellectual property rights, such as patents, registered trademarks, copyrights and mask works, the domestic industry test can be satisfied through a variety of activities. Manufacturing in the United States is one way to satisfy the test but is not required. A company involved in significant or substantial activities relating to engineering, research and development, licensing, or even other activities such as quality control and after sales service, may be able to satisfy the domestic industry requirement if sufficiently related to the intellectual property right being asserted. Even foreign-based companies can use the ITC to their advantage. Indeed, in 2009, more than 25 percent of the complaints filed at the ITC were filed by foreign-based companies with U.S. operations.
In a case involving “non-statutory” intellectual property or other unfair acts, such as trade secret appropriation, trade dress infringement, antitrust violations, and so forth, a complainant must show injury to the domestic industry. Injury can be shown, for example, by demonstrating that the unfair imports have been causing a loss of sales, lower prices, or adversely affecting employment in the United States. When actual injury has not yet occurred, the statute permits a showing of a “threat of injury.” If a company is concerned enough to bring a Section 337 complaint, it is likely that it will be able to prove injury to a domestic industry under the statute.
How a Section 337 Investigation Works
The process at the ITC begins with the filing of a complaint by the complainant, outlining the alleged unfair import practices, the basis for importation, and what constitutes the domestic industry. The Commission has 30 days to decide whether to institute an investigation. Typically, the ITC will institute as long as the complaint complies with the Commission’s rules.
The case is then assigned to an administrative law judge (ALJ). The parties proceed much as in a typical court case, except that everything moves much faster. In general, parties will have 10 days to respond to discovery requests and motions, rather than 30 days or more as in most cases in federal or state court.
The parties in a Section 337 case exchange documents and other discovery and, where appropriate, submit expert reports. Any party can file a motion to resolve both procedural and substantive issues. The case then goes before the ALJ for a hearing or trial. Typically, trials at the ITC are in the range of one to two weeks. Any party can call witnesses and submit documents as evidence at the hearing.
After the hearing, the ALJ issues his decision, or initial determination, as to whether or not there has been a violation of the statute. Parties can ask the Commission to review all or part of the ALJ’s decision. The ITC then issues its final determination on whether or not Section 337 has been violated, and if so, the appropriate remedy. A party adversely affected by the Commission’s decision can file an appeal with the Federal Circuit Court of Appeals, but the ITC’s exclusion order is in effect while the case is being appealed unless a respondent is able to obtain a stay of the order—which doesn’t often happen.
The Advantages of Using Section 337
Section 337 is ideally suited to protect the intellectual property rights of medical device companies. For one, Section 337 is extremely fast. By statute, cases must be resolved expeditiously. Typically, target dates are set which require the entire investigation to be completed, from initial institution of the investigation until a final Commission decision, within 12 to 16 months. This means that the case is likely to go to trial in less than a year, much faster than most federal or state courts.
If the complainant prevails, the ITC issues an exclusion order that is enforced by U.S. Customs and Border Protection and prevents the importation of the accused products at the border. In a district court case, an injunction would be limited to the specific products at issue, or other products not “colorably different” from those products. An ITC exclusion order, however, can cover all products made, imported or sold by the respondents that are infringing, not only the products found to infringe during the investigation.
In addition, in certain situations, a complaintant may be able to obtain a general exclusion order that prohibits the importation of all infringing products, regardless of source. These remedies are not available through the courts.
All known companies can be named in a single investigation at the ITC, including companies that are manufacturing infringing products outside of the United States, importing the products into the United States, and selling the product after importation.
In a typical court case, it may be necessary to bring multiple cases in different states in order to satisfy jurisdictional requirements. Also, in a court case it may take several months to serve respondents in some foreign countries, and the complaint and supporting documents may need to be translated. In contrast, the ITC serves the complaint on all proposed respondents by certified mail without the need for translations.
Companies named as respondents in a Section 337 investigation must answer the complaint and comply with discovery requests, or a default can issue and their products can be automatically excluded from the United States.
Furthermore, the administrative law judges at the ITC are very familiar with handling patent cases, and so you know you will be before a judge that is knowledgeable in these types of matters.
Section 337 can be a powerful remedy for medical device companies to prevent unfair competition from competitors that may be quicker and more effective than litigation through the courts. At a minimum, medical device companies should weigh the pros and cons of a Section 337 investigation when considering their options to protect their intellectual property rights.
* * *
In the second installment of this series, some actual cases under Section 337 involving medical devices will be discussed to illustrate how the statute works and some of its advantages.
Gary Hnath is a partner in Mayer Brown’s Washington D.C. office. His practice focuses on intellectual property litigation and counseling, including disputes involving patent, trademark and copyright infringement and trade secrets. He is a leading authority in the area of Section 337 litigation and former president of the ITC Trial Lawyers Association. Gary can be reached at ghnath@mayerbrown.com.
